AGL wins with Solar Flagships - but why go large?

AGL, in partnership with solar PV manufacturer, First Solar, has been revealed as the winner of the retendered round 1 for the government's Solar Flagships program in the solar photovoltaic category.  But the cost of the 159MW projects at $2.80 per watt installed is barely cheaper than a large residential solar system, calling into question why we went through this whole elaborate and drawn out three-year selection process under Solar Flagships. 

AGL's winning bid will employ First Solar's thin film cadmium telluride panels in two project locations in inland NSW:

-- Nyngan, which will be 106MW; and

-- Broken Hill, which will be 53 MW.

First Solar will provide engineering, procurement and construction services for both projects, which will build on its experience across a range of large solar projects in the world including the biggest – the 550MW Topaz project in California. In addition First Solar will maintain both projects for the first five years of operation.

The total capital cost of the project is $450 million. The NSW state government will provide $64.9 million, the federal government $129.7 million (which will most likely be treated as taxable income, so really the feds are only contributing 70 per cent of that sum of money), with AGL making up the balance from its cash reserves.

The projects will be developed in 2012-13 with construction complete in 2015. They are expected to create 150 direct construction jobs in Broken Hill and up to 300 in Nyngan.

This project is great news for the solar PV sector in Australia and on this occasion I'm pretty positive the projects will actually get built. Some of course will be disappointed that this solidifies the dominance of the big three electricity generator-retailers. However with AGL just acquiring a big brown coal generator, this fresh new renewable energy project will help to keep AGL advocating positively for the RET, and to a small extent provides some upside to the company from a carbon price.

But I just shake my head at the stupidity of the whole grant-tendering process that has transpired. It has been three years since Solar Flagships was announced in the 2009-10 budget and the selected project won't be operational until 2015. So that's between five to six years to get 159MW of solar PV installed. Yet the Australian solar PV industry installed over 800 megawatts in the prior calendar year alone using a market-based policy mechanism which entirely avoided the need for government to get involved in picking a winning project.

The idea that going for one or two large projects would result in major savings has been shown to be false. As outlined in an earlier Climate Spectator article (Cut price solar, April 13), there are a number of companies that can install quality solar systems for prices close to $2.80 per watt. Critically, these can avoid or offset the cost of delivered electricity at around $180-$300 per megawatt-hour (MWh) rather than wholesale prices of $60-$100 per MWh for Solar Flagship projects. 

Based on electricity bills I've seen from Origin Energy, they are already marketing systems of 50 kilowatts to commercial sector businesses,  which they say break-even after five years because these customers will avoid paying $270/MWh for electricity from the grid. Yet not much is happening in the commercial sector at this stage. Solar Flagships could have achieved more for less by trying to catalyse the commercial PV sector, although it would need to avoid using grant tendering as the model for government policy.

Perhaps the one notable benefit of Solar Flagships is that it provides much-needed revenue for First Solar to help progress its cadmium telluride technology, which is not well suited to small-scale installations. Of interest is that First Solar announced in its latest earnings presentation to investors that by 2016 it expects to be able to deliver fully operational projects at a price of $1.40 to $1.60 per watt – 50 per cent lower than what's planned for AGL's project.  While not quite as cheap as wind power, this opens up a huge supply of additional low emissions energy at a tolerable cost. 

If such costs can be realised it would mean most of the energy forecasts being used to shape government policy in this country are ridiculously pessimistic.